Patent Reform cleared its final hurdle on September 8, 2011, when the Senate approved the House version of the Leahy-Smith America Invents Act by a vote of 89-9, leaving only President Obama’s signature as the final step to make patent reform a reality. The President has expressed support for this legislation, and is expected to sign it into law very soon.

The Leahy-Smith America Invents Act makes the most sweeping changes to U.S. patent law in many decades, including moving the U.S. towards a first-to-file system, expanding prior user rights as a defense to infringement, eliminating interference proceedings, and creating new USPTO proceedings for post-grant review.

The Leay Smith America Invents Act

The Senate approved the House bill without amendment, so the final text of the new law can be found in HR 1249 as passed by the House on June 23, 2011. While many provisions of the law will not take effect for at least one year after the date of enactment, several key provisions have an immediate effect, and many provisions will have a retroactive effect after their phase-in.

I provided an outline of key effective dates in “Pressing The Patent Reform Panic Button,” published September 6, 2011. This article provides an oveview of some of the key changes that will be brought about by the Leahy-Smith America Invents Act, but readers should be aware that the Act includes many other important changes.

Key Immediate Provisions of the Leahy-Smith America Invents Act

Once President Obama signs the bill, the following provisions will take immediate effect:

Litigation-Related Provisions:

Effective immediately and applicable to pending proceedings, changes to 35 USC § 292 will eliminate qui tam actions for false marking suits. Under the new law, only the United States government can sue for statutory damages, although persons who have suffered a “competitive injury” from false marking can bring a civil action for damages “adequate to compensate for the injury.” The new law also provides that marking with an expired patent is not a violation of the statute. This means that virtually all pending false marking suits will need to be dismissed once the law is enacted.

Effective immediately and applicable to new actions, new 35 USC § 299 will limit the circumstances for joinder of defendants in infringement cases.

Effective immediately and applicable to new proceedings, a “best mode” violation will not be a basis for invalidating a patent.

Effective immediately and applicable to new patents, changes to 35 USC § 273 will create a somewhat expanded but “personal” prior commercial use defense.

Reexamination-Related Provisions

Effective immediately and applicable to new requests for inter partes reexamination, the standard for inter partes reexamination will change from “a substantial new question of patentability” to “a reasonable likelihood that the requestor would prevail” with respect to at least one of the challenged claims.

Effective immediately and applicable to any pending or subsequent Board appeal in an ex parte reexamination proceeding, such Board decisions may be appealed only to the Federal Circuit, not a district court.

Patent Application and Patent-Related Provisions

Effective immediately and applicable to pending applications, patents will not be granted to “tax strategy patents” or to claims encompassing human organisms.

Effective in 10 days, a 15-percent surcharge will be added to all patent-related fees, including patent maintenance fees.

Effective in 10 days, the USPTO will be authorized to proceed with its “Track I” program for fee-based prioritized examination, and to charge a $4,800 fee for large entities ($2,400 for small entities).

New Post-Grant Review Procedures

The Act creates two different procedures for third-party initiated post-grant review

Post-Grant Review: Under a new Chapter 32 (35 USC § 32x), there will be a nine-month window for challenging a patent on any ground, including 35 USC § 112. Chapter 32 takes effect in one year for certain business method patents (under specific transitional procedures noted below), but otherwise will apply only to applications with priority claims that fall eighteen 18 months after the date of enactment. Review may be granted upon a showing that it is more likely than not that at least one of the challenged claims is unpatentable. Post-grant review under chapter 32 may also be granted on the additional ground that the petition raises a novel or unsettled legal question that is important to other patents/applications.

Inter Partes Review: Under a new Chapter 31 (35 USC § 31x), patents can be challenged on the basis of patents or printed publications only, after the window for post-grant review has passed (or after a given post-grant review proceeding is completed). Chapter 31 takes effect in one year, but will be available to challenge patents issued before its effective date. Review may be granted upon a showing that the petitioner has a reasonable likelihood in prevailing that at least one of the challenged claims is patentable.

The burden of proof for the petitioner will be a preponderance of the evidence for both types of proceedings. Board decisions will be appealable to the Federal Circuit only.

Both chapters include procedural limitations intended to safeguard patentees from improper use of the review procedures, such as barring a petitioner from seeking review if it already has filed a district court action challenging validity and mandating a stay of subsequently filed district court actions until the patentee moves to lift the stay or makes an infringement counterclaim. The inter partes review procedure also imposes procedural limitations if an infringement action already has been filed by the patentee. Additionally, estoppel provisions will bar the petitioner from raising, in any subsequent USPTO proceeding, district court action, or ITC proceeding, any ground of invalidity that actually was raised or reasonably could have been raised during the review proceeding.

Certain business method patents will be subject to transitional post-grant review procedures. The procedures will be available one year after the date of enactment, and will apply to any covered business method patent, but can be brought only by parties who have been sued for or “charged with” infringement of the patent at issue. Covered business method patents are defined as those that claim a method or apparatus for “performing data processing or other operations used in the practice, administration, or management of a financial product or service.” The definition expressly excludes patents for “technological inventions.”

First-To-File Provisions

Changes to 35 USC § 102 will move the United States closer to a first-to-file system, but will retain a limited one-year grace period for filing an application after a public disclosure made by the inventor, made by another who obtained the disclosed information from the inventor, or made after such an inventor-derived public disclosure. The new version of § 102 will apply to applications with priority claims that fall eighteen 18 months after the date of enactment.

Changes to 35 USC § 135 will replace current interference proceedings germane to the first-to-invent system with derivation proceedings to determine whether the inventor named in an earlier-filed application derived the claimed subject matter from the inventor of a later-filed application. Derivation proceedings will apply to applications with priority claims that fall eighteen 18 months after the date of enactment. Interference Interference proceedings will continue to be available to earlier applications under the “old” version of § 135.

USPTO Fee Setting Authority — Fee Diversion Still Possible

One of the more disappointing aspects of the Leahy-Smith America Invents Act is that it does not prevent fee diversion, which would have been prevented by the Senate bill.

Effective immediately, the USPTO is given fee setting authority to set the level of fees already permitted by statute on a cost recovery basis, including the authority to offer a 50% fee reduction to small entities and a 75% fee reduction to newly defined “micro” entities.

Effective immediately, there will be established in the Treasury a “Patent and Trademark Fee Reserve Fund” (which will be separate from the Patent and Trademark Appropriation Account). Fees collected by the USPTO in excess of its appropriations for that year will be deposited into the Reserve Fund, but appropriation acts will be required before the USPTO can spend these funds.

As noted above, effective in 10 days, a 15-percent surcharge will be added to all patent-related fees, including patent maintenance fees. Funds collected by this surcharge will be deposited in the Patent and Trademark Appropriation Account and will be immediately available for spending for patent-related purposes.

Effective in 60 days, the USPTO is to charge a $400 surcharge for applications that are not filed electronically ($200 for small entities).

Litigation Provisions

The Leahy-Smith America Invents Act does not include the damages or venue transfer provisions that were present in earlier versions of the Senate bill.

Many of the litigation provisions in the Act have an immediate effect, and are noted above, including the changes to the standing requirements for false marking suits, the elimination of a “best mode” violation as a basis for invalidating a patent, and the availability of a revised prior commercial use defense.

One litigation-related provision that takes effect in one year and applies only to patents granted after that date, is the creation of new 35 USC § 298, which provides that the failure of an accused infringer to obtain an opinion from counsel, or to produce such an opinion during litigation, cannot be used to prove willful infringement or intent to induce infringement.

A Bumpy Road Ahead

Now that patent reform is no longer idling in the legislative process, it is time to shift gears into overdrive, to study the language of the new law, consider its implications, and devise and implement new strategies. The USPTO already has been working on the implementing regulations, and has established a patent reform implementation website that provides information on patent reform and contact information to provide informal comments to appropriate USPTO officials.

Foley is hosting a patent reform webinar on Wednesday, September 14, 2011, at 1:30 pm eastern. Robert L. Stoll, Commissioner for Patents, is scheduled to be a special guest speaker. (The event is free, but pre-registration is required.)

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Senator Maria Cantwell may have said it best: “This is not a patent reform bill. This is a big corporation patent give away that tramples on the rights of small inventors.” It’s certainly a shame that Sen. Coburn’s amendment (ending fee diversion by Congress) didn’t stand a chance. But considering the current political climate, I suppose it’s not surprising.